Here’s an obvious question.
You want to make money in the stock market right?
So far in the first 3 months of this year, I’m already involved in 2 special situations to boost my portfolio returns.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
- NuPathe Part 1 and Part 2
- and now this one
If I calculate the time spent on each deal with the expected profit across my 3 accounts, it‘s more than $200+/hour.
And if you followed my tutorial on setting up the Value Investor’s Google Alerts to automate the process of finding these deals, you know which special situation I’m going talk about.
25% in 2 Months with Global Sources Ltd. (NASDAQ:GSOL)
Here are the details.
GSOL intends to commence an issuer tender offer before the end of April 2014, with expected completion before the end of May 2014, for approximately 5 million shares, or approximately 14.4% of its outstanding common shares as of Feb. 28, 2014, at apurchase price of $10.00 per share in cash. Global Sources expects to fund the tender offer with cash on hand. As of Dec. 31, 2013, Global Sources had total cash, cash equivalents and available-for-sale securities of approximately $143.8 million.
- Tender completes at the end of May 2014
- 5 million shares or 14.4% of shares outstanding to be tendered
- Purchase price of $10 per share
- Fund with cash on hand
I post special situations as I find them on the forum. It’s quick, informal and I can have a discussion about the validity of the workout before announcing it officially. If you want to get in early with whatever I’m finding, make sure to check the value forums.
Here’s a nicely researched piece of the Global Sources Ltd. (NASDAQ:GSOL) special situation on Seeking Alpha. Sums up everything nicely.
Digging Deeper to Know What You Are Getting Into
You can look up what the company does, but I’m quite familiar with GSOL personally.
I’ve used them before. I used to play the ebay arbitrage game of sourcing products for cheap from China and then flipping it. Global Sources was a good place to get ideas.
More importantly, the company is legitimate and not a reverse Chinese merger company. In other words, it’s ok to participate in this.
Back in 2010, GSOL completed a tender offer just like this. It’s nothing new to them.
The only caveat is that Global Sources Ltd. (NASDAQ:GSOL) will be spending only half the amount they spent 4 years ago and I fully expect more shares to be tendered than the original 5m.
Here’s what happened in 2010.
The number of shares properly tendered and not properly withdrawn is preliminary and subject to change. Given that the number of shares tendered was greater than the number of shares that the company offered to purchase, it will be necessary to apply the ”odd lot” priority and pro-ration provisions described in the company’s offer to purchase. The “odd lot” priority and pro-ration process is estimated to be concluded by August 4, 2010 and payment to shareholders is expected to promptly commence after that process has been completed. The company will issue payment of $9.00 per share for all “odd lot” and pro-rata shares that were properly tendered and not properly withdrawn.
Here’s how I’m thinking about this.
- more shares will be tendered than the 5m
- buy an odd-lot to ensure that shares are tendered
- 4 years ago, GSOL tendered at $9 per share and paid $100m. This time, GSOL is paying $10 per share for a total of $50m.
- plenty of cash with good balance sheet to cover this tender easily
Why an Odd Lot?
(For an odd-lot definition, check this investopedia link)
There is no mention of odd-lot provisions in the press release, but like I said, I’m expecting this deal to be oversubscribed. And if it plays out like it did in 2010, odd lot holders will get priority and have their shares tendered.
If you buy too many shares hoping to make a quick and easy 25% return, think again. You’re going to end up holding shares instead of cash.
I bought 99 shares for each of my accounts because I don’t want to hold any GSOL shares. The standard odd lot size is under 100 shares but it’s up to the company to define what the odd lot actually is.
Got a tip from a reader that GSOL defined an odd lot as 50 shares in 2010.
If you own, beneficially or of record, 50 or fewer Shares in the aggregate, you properly tender all of these Shares prior to the Expiration Date and you complete the section entitled “Odd Lots” in the Letter of Transmittal and, if applicable, in the Notice of Guaranteed Delivery (the “Notice of Guaranteed Delivery”), we will purchase all of your Shares without subjecting them to the proration procedure. – filing source
I always buy 99 shares but buying 50 or less isn’t worth it.
Even if GSOL looks like a value play, I don’t want to hold any shares purely for portfolio sizing reasons so all I can do is hope that the odd lot size isn’t 50.
Here’s Your Profit Table
GSOL Special Situation Profit Table
I was able to get in at $7.80 for two of my accounts and $8.00 for the other.
I’ve read where some people have about 30-40 accounts just for special situations and by having so many accounts, profits are maximized.
e.g. instead of just doing one workout and making $200, multiply that by 30 and your total profit becomes $6k.
This is an extreme case, but interesting there are people doing it.
Make 25% in 2 Months
Get the odd lot and make 25% in 2 months for a very low risk investment. These special situations is one of the best way to boost your returns in a volatile and sideways market.
This post was first published at old school value.
You can read the original blog post here Make 25% in 2 Months with this Special Situation.